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APRIL 1, 2010.

Dollar Revival Gains Pace

Euro's 2010 Slide Boosts the Buck; Curious Yen Strength.

By TOM LAURICELLA

After almost being given up for dead last autumn, the dollar continued to revive in the first quarter, extending a rebound begun during the final weeks of 2009. And although the greenback's gains were uneven, the foundation may be set for the U.S. currency to make a broader run higher.

"The theme in the first quarter was fiscal irresponsibility," said Kathy Lien, currency strategist at GFT Forex. "But in the second quarter I'd expect a lot of the fiscal concerns will subside. We're going to see central banks laying the groundwork for … lifting interest rates and that's going to benefit the dollar."

Much of the greenback's better tone during the period came at the misfortune of the euro, as the debt crisis in Greece dragged on and European Union officials haggled for weeks over a solution. Also weighing on sentiment for the common currency were concerns that heavily indebted Portugal and Spain could be the next dominos to topple. The euro slid 6% in the first quarter to $1.3509, marking an 11% decline from its peak last November.

While the Greek plan that EU officials ultimately agreed on last week is seen as safety net against the risk of default, many believe that Europe is likely to be in for an extended down period. Slow economic growth and low interest rates are expected as the Mediterranean countries are forced to clamp down on government spending.

"There's a massive adjustment which has to happen," said Sebastien Galy, currency strategist at BNP Paribas. BNP has for some time been calling for the euro to fall below $1.30 this year and head toward $1.20 by the end of 2011. In the wake of the EU plan, "we see $1.20 happening increasingly fast," he said.

It wasn't all up for the buck in the first quarter. Despite a deeply troubled Japanese economy and even some comments from the new Japanese finance minister suggesting that a weaker yen would be helpful, the dollar rose just 0.44% against the yen, ending at 93.49.

"The fundamentals are so bad in Japan," said David Gilmore a partner at Foreign Exchange Analytics, that the yen's resiliency "defies logic."

Mr. Gilmore and others say the repatriation of investment income by Japanese investors is a likely reason for the currency's buoyancy. But as the quarter wound down, the yen weakened as the Bank of Japan took additional steps to pump money into the country's financial system.

In the U.S., by contrast, the final day of the quarter saw the Federal Reserve take a major step to reverse its unprecedented loosening of credit as it ended its support of the mortgage-backed securities market. A growing number of analysts expect the Fed to soon lay the groundwork for raising interest rates, which would underpin the dollar further.

Against emerging-market and commodity-producing countries, the dollar also struggled in the first quarter. The Brazilian real fell 2%, and the Canadian dollar gained 3.51% as it approached parity with the U.S. for the second time since 1976.

But with central banks in Australia and India raising interest rates, and Brazil and Canada seen likely to follow, some analysts think those currencies could lose support in coming months if it appears their economies could appreciably weaken.

The strength in such currencies "has been a growth story and as they tighten policy, people are going to be less comfortable staying in those markets," Mr. Gilmore said. In part, those currencies rose on the back of money heading into those countries' stock and bond markets. That, Mr. Gilmore said, could lead to a "considerable pullback" and a stronger dollar.

In some ways, it will simply be a reversal of 2009's trends, Mr. Gilmore says. "If you believed that the liquidity provided to markets helped inflate asset prices … and got people to buy risky currencies then it follows that when the central banks pull back, those asset prices are going to correct and those risky currencies are going to weaken" against the dollar, he said.

Much of what happens in the big commodity-producing countries and broadly in the foreign-exchange arena will depend on a currency-market wildcard: China, whose currency has been effectively pegged to the dollar since Beijing halted the gradual appreciation of the yuan in mid-2008.

China is widely forecast to start raising interest rates in coming months to cool its fast-growing economy. That could hurt demand for raw materials and weaken so-called commodity currencies like those of Australia and Canada. China also is being pressured by U.S. officials to allow the yuan to appreciate against the dollar, which some think could happen by year's end despite diplomatic wrangling. That in turn would make its exports more expensive abroad and possibly lend a prop to the dollar and rival Asian currencies.

For the most part, the expectation is that China will trim economic growth but not stamp on the brakes. "They're going to be very cautious," said Paul Robinson, a currency strategist at Barclays.

Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved

The end of the binge

Mar 31st 2010
From The Economist print edition

The consumer boom defied fundamentals. Now economic rules are reasserting themselves


IT WASN’T supposed to happen. An academic study in 1991 predicted that as the baby-boomers aged, America’s saving rate would rise by one or two percentage points by the mid-2000s. Instead it fell. Between 1995 and 2000 the share of American households owning their home should have dropped by a percentage point as boomers passed their home-buying years. Instead it rose by 4.6 percentage points, with the sharpest increases among those under 45, according to Harvard University’s Joint Centre for Housing Studies.

The economic behaviour of Americans born in 1935-44 turned out to be a poor guide to their children’s conduct. According to a study by the McKinsey Global Institute, when the parents’ generation reached the age of 45 their saving rates rose sharply, to about 30% of disposable income. Yet when their children’s generation, born in 1955-64, reached the same age, their saving rates remained unchanged, at about 10% of disposable income.

This divergence is explained by two events, both dating back to the early 1980s. First, the Federal Reserve’s success in taming inflation resulted in two decades of falling real interest rates and rising share and property prices. As people’s assets rose in value, they felt less need to save for college, retirement or rainy days. Pricier homes provided more collateral against which to borrow.

Second, federal ceilings on deposit and loan rates were abolished, launching a period of deregulation that enabled banks and other institutions to offer countless new financial products and allow millions to borrow large sums of money for the first time. Automated underwriting enabled lenders to screen borrowers more efficiently (and also reduced the opportunity for racial discrimination). Securitisation—bundling mortgages, car loans and credit-card debts into securities and selling them on—helped lenders limit their risks. Policymakers smiled on all this because it allowed many more Americans to become homeowners at no cost to the taxpayer. In 1989 only 47% of middle-income households had a mortgage. By 2007 about 60% did.

The Asian financial crisis of 1997-98 accentuated these trends. It sent oil down sharply and the dollar up, raising Americans’ purchasing power and their taste for imports and oil. In its aftermath Asian countries held down their exchange rates and began to accumulate huge trade surpluses, both to bolster growth and as protection against future crises (and the humiliating strictures of the IMF). They ploughed those surpluses into America’s bond market, holding down interest rates and inflating the housing bubble.

The return to earth began long before the riskiness of all this became obvious. In 2002 the dollar began to fall. In 2004 oil headed upwards. In 2006 the housing market turned down. Hopes that the transition would be gentle evaporated as the crisis erupted, leading to the recession of 2007-09. Many companies realised too late how much they had depended on credit-fuelled profligacy. GE, for instance, eventually relied on financial services for half its profits. Last year Jeff Immelt, the conglomerate’s chief executive, admitted that “we let it get too big.” Citigroup’s boss, Vikram Pandit, explained in 2008 how his company got into such a mess: “We had a large, long US consumer position.” Unfortunately, he added, so did the entire world.

Where consumers rule

Consumers have always dominated the American economy. Since 1950 their share of spending (including housing) has ranged from 66% to 76%. What was different about the pre-crisis era was the role of credit: in myriad new forms it made it possible for consumers to spend well beyond their income.

Consumption will recover, but it will no longer grow faster than income, as it did persistently for the two decades before the crisis; indeed, it should grow more slowly. With their shares and homes worth far less than they were, baby-boomers must now save harder for retirement. Lenders demand higher credit scores, bigger deposits and more stringent proof of income. Policymakers, who had cheered looser lending standards on the way up, are now tightening them further on the way down. True, Barack Obama has pleaded for banks to do more lending and put a government guarantee behind much of the mortgage market. But he is also bent on establishing a powerful Consumer Financial Protection Agency to scrutinise lenders’ offerings. Regulators are planning to hold banks to stiffer capital and liquidity rules.

The more that an industry depended on consumers’ access to credit, the harder it has been hit. As home ownership drops, developers are building smaller, simpler homes (see chart 3). Steve Hilton, the boss of Meritage Homes, is keeping the price of his houses down to at most 15% more than comparable existing ones to compete with the flood of foreclosures. On the garage doors of his company’s show homes hang garish banners advertising the “no-tricks” monthly mortgage payment: $1,480 for the three-bedroom, two-bathroom Harrison, for example. “It used to be taboo to talk about the payment,” says Mr Hilton. But nowadays buyers are looking for a place to live, not an investment, and knowing what the monthly repayment will be lets them compare the cost of owning and renting more easily.

Cars, like houses, are usually bought on credit, with either a loan or a lease. During the credit boom the terms of such deals were exceptionally attractive, but not any more, thanks to tight credit generally and the woes of GMAC, the financing arm of General Motors and Chrysler, which has been laid low by bad mortgage lending. In most years since 1960 some 7-8% of driving-age Americans bought a car. Last year only 4% did, according to IHS Global Insight, a consultancy. It forecasts that when the market has recovered the figure will settle at about 6% in any given year.

Cut up those credit cards

The recession also marked a “coda” to the credit-card industry’s first 50 years, says David Robertson of the Nilson Report, an industry newsletter. The popularity of credit cards was bound to wane as baby-boomers moved on from their highest-spending years, he says: “Instead of gliding to a manageable end, it wound up blowing up.” The number of holders of Visa, MasterCard, American Express and Discover cards shrank by 32m, or 11%, last year, according to Nilson. Outstanding revolving credit (mostly credit cards and personal lines of credit) fell by $92 billion, or 10%, the largest such drop since records began in 1968. That will have an effect on consumer spending more generally.

Credit-card companies attracted their share of the anger directed at Wall Street. With effect from February, the Federal Reserve and Congress banned a wide range of card-company practices, such as raising a borrower’s interest rate when he defaults on a loan extended by another organisation. Parents must now give their consent before their children under 21 can get a card. “At a time when our economy is in a crisis and consumers are struggling financially, credit-card companies are gouging them,” said Chris Dodd, chairman of the Senate Banking Committee.

Noxious as some of the card-companies’ practices were, they did allow many more people to hold credit cards. Bankers say the new restrictions may cut the number of credit-card holders by up to 45m. That is almost certainly an exaggeration, but there is bound to be a drop.

The changed economic and regulatory environment has certainly affected card companies’ strategy. American Express, for instance, had long favoured charge cards over credit cards, but in 1999 it launched its “Blue” credit card with a charity concert in New York’s Central Park featuring Sheryl Crow, Eric Clapton and Sarah McLachlan. The card was aimed at technologically savvy young consumers and contained a microchip to deter identity theft and encourage internet shopping. In subsequent years Amex followed up with a series of cards aimed at niche borrowers, from newlyweds to young Chicago professionals.

But the push into credit cards cost Amex dear as delinquencies mounted during the recession. Under new accounting rules it will have to hold additional capital for the off-balance-sheet vehicles used to securitise credit-card debts. Having agreed in 2008 to be regulated by the Federal Reserve, in part to qualify for bail-out funds (which it has since repaid), it may face stiffer liquidity and capital requirements than it would have done otherwise.

It has now ditched many of its new credit cards except Blue and returned to its roots in charge cards and services such as electronic payments. “There are going to be segments, not just subprime but [of] the middle class, that are not going to have access to credit, and when they get credit it’s going to be a lot more expensive,” Ken Chenault, Amex’s boss, said last summer. “The charge card is even more a product for these times than…three years ago.” The company is now offering features that help cardholders control spending. It lets them pay for groceries with reward points and impose spending limits on kids with supplemental cards. If consumers espouse frugality instead of ostentatious spending, Amex wants to be there.

Copyright © 2010 The Economist Newspaper and The Economist Group. All rights reserved.

April 1, 2010

I.H.T. Op-Ed Contributor

The Fault Lines of Democracy

By NICOLAS BERGGRUEN and NATHAN GARDELS

SAN FRANCISCO — China may have invented the first printing press in 593 and published the first woodblock-printed newspaper, Kaiyuan Za Bao, in Beijing in 713. But in 2010 it wants to curb the newest information innovation led by Google.

To avoid censorship, Google has moved its search engine to Hong Kong and may leave China altogether after hackers, hidden for deniability somewhere deep within the Communist bureaucracy, breached Google’s proprietary systems and pieced together the e-mail exchanges of Chinese dissidents in order to trace their social networks.

Clearly a clash is shaping up that pits the raucous free-for-all of the Internet against China’s long-standing Confucian proclivity for order, respect for authority and a conformist notion of social harmony.

As they try to rebalance a relationship in which China still largely depends on American consumption of its exports and the United States largely relies on China’s purchase of U.S. Treasury debt, these tightly tethered partners in prosperity will only intensify their interaction in the coming decade. Inevitably, as the geo-civilizational plates push up against one another and produce tremors, might the cultural equivalent of subduction take place? Might, for example, more appreciation for freedom of expression shift Eastward and a greater appreciation of governing in the common interest and long-term perspective shift Westward?

To be sure, there is much cultural history under the bridge of today’s interdependence that contributes to the tectonic pace of convergence. China’s ancient “Warring States” period ended with a commitment to unified territorial integrity and stability that led to a modern focus on political control and social harmony. The path to peace after the West’s religious wars led to the opposite ideals: tolerance and diversity. In the Confucian tradition, China has relied on ethics, including obligations of the ruler to the ruled, and education to keep its institutions responsive, fair and honest. The West has relied on the check of democracy.

Nonetheless, as the political philosopher Daniel A. Bell proposes, some common ground can be envisaged along the fault lines.

Counterintuitive as it may sound to the Western ear, China may be more open to fundamental political reform than the United States. Since the rule of law in America is based upon the notion that the state itself is constrained by a body of pre-existing law that is sovereign, any thought of rewriting the Constitution is anathema.

In China, however, some intellectuals point out that Communist Party theory posits that the current system is the “primary stage of socialism,” meaning that it is a transitional phase to a higher and more superior form of socialism. The economic foundation will change with broader prosperity, and thus the legal and political superstructure must also change.

That has led some contemporary Confucian scholars to argue that new institutions for the higher stage of development should be designed based on indigenous sources of legitimacy from within the Chinese experience — meritocratic knowledge of the governing class, the people and tradition.

Mr. Bell, who teaches at Tsinghua University in Beijing, has taken these ideas a bit further. He envisions a meritocratic upper house whose members are chosen not by election, but examination; an elected national democratic legislature that advises the upper house on “preferences;” direct elections up to the provincial level, and freedom of the press. The “symbolic leader of the state” would be chosen from among the most august members of the meritocratic house.

Such a formulation and others similar to it — about which there is a rich debate across China today — sticks to the Confucian idea of meritocratic government mitigated by popular accountability, but not completely ruled by it. This seems precisely the kind of non-Western political modernization we will see as China adopts its own form of democracy.

China desperately needs such a system of accountability to stem the arbitrariness, corruption and cronyism that have accompanied the primary stage of socialism. Yet such an approach as put forth by Mr. Bell seems likely to also maintain stability in a way that parliamentary democracy of the West might not, and thus would be an acceptable course of change in China.

Paradoxically, while Chinese intellectuals seek to expand democratic accountability as the poor become more educated and prosperous, the U.S. has the opposite problem: Too much short-term focus by the citizens of the prosperous consumer democracies is undermining long-term sustainability.

Thus, while institutional innovation in China might focus on a truly empowered — yet checked — elected house, the U.S. would benefit from the type of long-term deliberation offered by bodies such as a meritocratic upper house and some entity with the responsibility for continuity of governance that stands as a unifying symbol in an ever more diverse society.

During the first round of globalization at the turn of the 20th Century, Sun Yat Sen tried to blend the institutions of Western democracy with Confucian meritocracy. Perhaps today, as the “rise of the rest” challenges Western dominance, the political imagination may again be open to new ideas. This time, it won’t be just Western ideas flowing East, but Eastern ideas flowing West as well.

Nicolas Berggruen is founder and president of Berggruen Holdings, an investment firm. Nathan Gardels is editor-in-chief of NPQ.

OPINION

MARCH 31, 2010.

Iran Sanctions Are Failing. What's Next?

We will soon be left with a stark alternative: Either Iran gets a nuclear weapon and we manage the risk, or someone acts to eliminate the threat.

By DANIELLE PLETKA

Has the U.S. abandoned plans to target the Iranian regime's access to banking and credit and to isolate Iranian air and shipping transport? While recent reports to that effect have been strenuously denied by the administration, it has become clear that Secretary of State Hillary Clinton's promise of "crippling sanctions" and President Barack Obama's "aggressive" penalties are little more than talk. The administration simply cannot persuade a critical mass of nations to join with it.

At this juncture, there are blunt questions that need to be asked. Can sanctions even work? Can we live with a nuclear Iran? Is military action inevitable? But first, some foreign policy forensics are in order.

Candidate Obama told us engagement would be his byword, and to give him credit, he proffered a generous, open hand to Tehran. If his hand remained outstretched a little too long, he was secure in the knowledge that the world rarely criticizes an American president who is willing to make sacrifices for peace (especially if those sacrifices are measured in terms of American national security). But Mr. Obama was more than committed to dialogue with Iran: He was unwilling to take no for an answer.
How else to explain Mr. Obama's lack of interest in the Iranian people's democratic protests against the regime. Or his seeming indifference to Tehran's failure to meet repeated international deadlines to respond to an offer endorsed by all five permanent U.N. Security Council members (and Germany) to allow Iran to enrich uranium in Russia, receiving back enriched fuel rods that do not lend themselves to weapons production. One might have hoped the administration was using that time to build international consensus for a plan B. But apparently that's not the case.

After months of begging, China will agree only to discuss the possibility of a fourth U.N. Security Council resolution punishing Tehran's noncompliance with its nonproliferation commitments. But along with Russia, it has already ruled out any measures to target the regime or the Iranian Revolutionary Guard. Even nonpermanent U.N. Security Council members Japan, Brazil and Turkey have reportedly rebuffed the administration requests to support tougher sanctions.

Meanwhile, Tehran continues to work toward a nuclear weapon, with the International Atomic Energy Agency now looking for two new nuclear sites in the Islamic Republic. Any talk of a tidal wave of ad hoc sanctions among various like-minded Western nations has fallen by the wayside. True, companies like Royal Dutch Shell, major oil trader Vitol and others have decided to take a pass on new deals with Iran. Others are less cautious.

In the past few weeks, among other reported business with Iran, Turkey announced it was mulling a $5.5 billion investment in Iran's natural-gas sector. Iran and Pakistan signed a deal paving the way for the construction of a major pipeline. And a unit of China National Petroleum inked a $143 million contract with Iran's state-run North Drilling Company to deliver equipment for NDC's Persian Gulf oil fields.

Sanctions increasingly appear to be a fading hope. Thus we are left with a stark alternative: Either Iran gets a nuclear weapon and we manage the risk, or someone acts to eliminate the threat.

Unofficial Washington has long been discussing options for containment of a nuclear Iran. Setting aside the viability of containment (I have my doubts), surely these challenges must be apparent to some on the Obama team. But you'd never know it from administration officials, who continue to privately profess faith in the (weak) sanctions route. Badgered by those in the region most directly menaced by a nuclear Iran, administration officials have reportedly refused to engage in discussion of possible next steps.

The implications of this ostrich-like behavior are grave. Some Gulf states (including, some say, Qatar, which hosts American forces and equipment) have begun to openly propitiate the Tehran regime, anticipating its regional dominance once it is armed with nuclear weapons. Others, not reassured by Clinton drop-bys and ineffectual back-patting, have begun to explore their own nuclear option. Repeated rumors that Saudi Arabia is negotiating to buy an off-the-shelf Pakistani nuclear weapon should not be ignored.

What of Israel? The mess of U.S.-Israel relations has ironically only bolstered the fears of Arab governments that the current U.S. administration is a feckless ally. If the U.S. won't stand by Israel, by whom will it stand? Conversely, our adversaries view both the distancing from Israel and the debacle of Iran policy as evidence of American retreat. All the ingredients of a regional powder keg are in place.

Finally, there is the military option. Israeli Prime Minister Bibi Netanyahu left Washington last week befuddled by Mr. Obama's intentions on Iran. Should Israel decide to attack Iran, the shock waves will not leave the U.S. unscathed. Of course, Mr. Obama could decide that we must take action. But no one, Iran included, believes he will take action.

And so, as the failure of Mr. Obama's Iran policy becomes manifest to all but the president, we drift toward war. The only questions remaining, one Washington politico tells me, are who starts it, and how it ends.

Ms. Pletka is vice president for foreign and defense policy studies at the American Enterprise Institute.

Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved

U.S. Decline, Sloth Look a Lot Like End of Rome: Mark Fisher

Commentary by Mark Fisher

March 30 (Bloomberg) -- Historians cite the late second century as the turning point of the Roman Empire, when the once- proud, feared society began its descent into infamy.

As the ruling class was undermined by civil wars and attacks by outsiders, the Romans’ respect for law and social institutions began to erode. In the end, a combination of political and economic mistakes led to the empire’s downfall.

The U.S. today is a mirror image of the Roman Empire as it tipped into chaos. Whether we blame our bloated government, a greedy elite or a lethargic population, the similarities between the two foreshadow a gruesome future.

The Roman economy grew fat from the plunder of conquered territories and the added productivity offered by new lands. The waning of expansionism didn’t bode well for the empire.

While the U.S. ascended quite differently, it also used its position as a superpower to fuel economic expansion. Because the country had the strongest military and economy in the post-World War II era, the U.S. dollar became the de facto global reserve currency, ensuring endless competitive advantages -- which have vanished in the last decade.

Americans have become less productive while relying more on social safety-net programs such as Medicare, Medicaid and Social Security -- and now expanded health-care insurance. Worse, like the ancient Romans, a sense of entitlement has replaced the drive and motivation we once championed. With easy access to abundant government handouts, it’s no wonder so many jobless people have stopped looking for work.

Bread and Circuses

In the fifth century, the Roman political elite began searching for ways to distract its population from the hopelessness at hand. Bread and circuses postponed the ultimate fall. The tactic stopped working when people realized their bread tasted stale and sensed the true scope of the impending disaster.

The U.S. government’s version of bread offerings proliferated throughout the fiscal crisis, in which collapse was averted only by a massive financial bailout and an endless supply of paper money, along with the rest of the seemingly endless sustenance being shoved down America’s throat.

Meanwhile, the administration hasn’t yet tackled the most pressing issue: job creation. Given the current state of the labor market, American workers can’t possibly provide enough tax revenue to support the government’s swelling debt.

Even more unsettling is the government’s inability to fix the financial crisis. After a stream of stimulus programs and bailouts, the Federal Reserve continues to print enormous quantities of dollars and buy the nation’s debt.

California Like Greece

Many state governments are in even worse shape. With California’s 10-year debt currently yielding about 4.5 percent (municipal debt typically yields less than 10-year Treasuries, which now yield about 3.9 percent), the state poses the same sort of danger to the U.S. that Greece does to the European Union. If the federal government decides to bail out California, what happens when Michigan and New York start demanding the same treatment?

The burden of underfunded pension liabilities will cause states’ budget deficits to further balloon. Since defined state benefit plans assume an unrealistic 8 percent rate of return -- zero percent, at best, is more likely -- we can only imagine the catastrophe to come once states have to make good on their obligations.

As our society becomes increasingly immobile and sits on the couch doing nothing but surfing the Internet, using iPhones and watching “Jersey Shore,” the hopelessness of the situation becomes clear.

Fear Mounts

Unless the government creates a massive jobs program, cuts spending and taxes, and gains control of the national budget and the balance of payments crises, we should fear for our future. Unless our fellow Americans relearn the value of hard work, no government plan stands a chance.

Once the world realizes that the U.S. is the new Rome, the traditional tenets governing asset correlations will no longer hold, and we can expect a breakdown in traditional stock-bond portfolio theories.

Since paper assets are ultimately shoved down to zero, expect hard assets to benefit -- especially gold, energy and grains -- along with commodity-related equities.

The name of the game going forward -- let’s say the next five years -- will be buying ahead of whatever China and other developing nations are trying to accumulate and diversifying away from the U.S.

The China Factor

Consider the trading relationship between the U.S. and China. When the U.S. funnels its unfinished products to China, the Asian nation is able to send back manufactured goods -- thanks to its abundant supply of cheap labor -- in return for dollars. While the American people are busy tinkering with their newly manufactured playthings, the Chinese continue to use their new wealth to buy energy and commodity assets.

Thus, China and the other developing countries that are amassing dollars, euros and pounds basically play a game of global hot potato, trying to pass the potato -- worthless paper currencies -- to others in exchange for energy, water and valuable food assets.

As China continues to thrust its dollars at all things commodity-related, it’s hard not to laugh when hearing President Barack Obama speak about trying to identify “environmentally sound” opportunities in energy.

Meltdown Ahead

It’s only a matter of time before the mechanism that has allowed the government to sustain its trade deficit for longer than it should have -- similar to the Asian dollar peg of the 1990s -- causes a simultaneous decline in the U.S. currency, asset prices and the economy.

Once people begin to realize that their paper currencies, stocks and bonds are all garbage, we can expect a meltdown.

Although it may be too early to predict an impending collapse in paper assets and an immediate need to acquire hard assets, it’s clear that we’ve reached a turning point. The ship has begun to sink. As I await a global re-set of asset values and prices, I will continue to monitor the swelling federal and state tax revenue levels, the rising animosity between Main Street and Wall Street and the progress made by commodity-hungry nations as they continue to eat our lunch.

While I continue to hope for the best, it’s far wiser to prepare for the worst.

(Mark Fisher, author “The Logical Trader,” is the founder of MBF Asset Management LLC. The opinions expressed are his own.)

Last Updated: March 29, 2010 21:00 EDT